Tennessee expects to save $50 million in building costs

In Memphis, the state of Tennessee plans to move 900 workers from the state-owned Donnelley J. Hill office building Downtown to leased space because the Hill Building’s deferred maintenance has risen to $18 million, the General Services commissioner said Tuesday.

But in Nashville and other cities, state workers are being moved from leased space to state-owned buildings that are underused, Steve Cates said.

“Every solution is not the same,” he said.

The massive shifting — the goal is to move about 14,000 state employees from expensive or outdated office space to more efficient and improved buildings — is part of an initiative that has Tennessee leading the nation in the management of its buildings, according to Jones Lang LaSalle.

The global commercial real estate firm says it will help Tennessee cut $50 million in costs over five years.

Jones Lang LaSalle was hired by Tennessee not only to study how efficiently the state uses its buildings and leased space, but also to comprehensively manage the buildings.

“Jones Lang LaSalle works with 20 different states in various capacities, helping them with their real estate,” said Paul Uber, managing director at Jones Lang LaSalle. “No one has come close (as Tennessee) to doing as comprehensive a review of the real estate portfolio with the goal of optimizing the utilization of it.”

Last month, the outsourcing resulted in Tennessee’s General Services department reducing its work force by 126 people, Cates said.

Jones Lang LaSalle will be involved with 600 state buildings, but already has studied the state’s 33 largest buildings totaling 4.6 million square feet. It wrote an occupancy plan with recommendations for efficient use and operation of state property.

The Hill Building is the only state property in Memphis affected so far, Cates said. Jones Lang LaSalle estimated the building’s deferred maintenance, including mechanical and electrical upgrades, at more than $18 million, but said the building would fetch less than $3 million if sold today, Cates said.

“The operating costs are double in that building than they should be,” he said. “Not a lot of money has been spent on mechanical and electrical equipment over time. The state had to make decisions during times when revenue wasn’t great.’’

State officials decided it’d be better to either lease or build new, and has issued a request for proposals to lease 100,000 square feet, preferably Downtown.

The private sector spends an average of $2,625 per full-time employee to provide workspace; the average for Tennessee workers is $4,488, Cates said.

Both Cates and Uber cited the “Swiss cheese effect” in the state office buildings the real estate firm studied. One floor might be 80 percent occupied, another 20 percent. The middle of a floor might be fully occupied, but its ends mostly empty.

Much of the low-hanging fruit for saving money has involved identifying state-owned, underused space and making more efficient use of it, Uber said.

That will take a lot of renovation. In the past, it wasn’t unusual for agencies to move employees out of outdated state-owned space for nicer leased space, Uber said. The state will modernize space and make it more appealing for workers, including making natural light more accessible, improving furniture, designing the offices to encourage more collaboration, freshening the air, and making the buildings more energy efficient.

The improvements will make workers more productive, he said.

Operating costs will be reduced in part by making the buildings more energy efficient, Uber said.

But in taking over subcontracted services such as janitorial, pest control, window washing, landscaping and security, Jones Lang LaSalle will save Tennessee money through the company’s leverage, Urber said. The Chicago-based firm operates from more than 1,000 locations worldwide. “We have a large procurement sourcing organization that knows how to” buy those services,” he said.

The company will also save Tennessee money through its property management expertise, its technology resources and by using fewer employees to do the same amount of work, Uber said.